The High Court recently approved the Part VII transfer to Equitas of all 1992 and prior non-life liabilities that were underwritten by Lloyd's Names. This development will bring welcome relief to the 1992 and prior Lloyd's Names who will no longer be exposed to any liability in the UK or Europe to policyholders.
Following the huge losses for Lloyd's Names in the early 1990s (particularly as a result of asbestos and pollution related liabilities), Equitas was established in 1996 to reinsure and run-off all of Lloyd's 1992 and prior non-life liabilities. Lloyd's Names on these years of account were obliged to reinsure their liabilities through Equitas.
Equitas asked the High Court to sanction the transfer to it of the 1992 and prior non-life business that was carried on at Lloyd's. The High Court approved the transfer, giving the following reasons:
- The threshold conditions under the Financial Services and Markets Act 2000 were fulfilled.
- The FSA had been consulted about the transfer and not objected to it.
- The transfer had been sufficiently widely publicised to persons likely to be affected by it.
- Pending recognition by other jurisdictions outside Europe (principally the US, Canada, South Africa, Australia and New Zealand) underlying policyholders would not be disadvantaged by the scheme.
Implications for the market
The transfer will be welcomed by Lloyd's Names who still faced a possible exposure to an estimated US$7.8 billion of pre-1993 liabilities.
Whilst the retrocession of Equitas's liabilities into National Indemnity Company (a member of the Berkshire Hathaway group of companies) reduced the risk of Equitas being unable to meet its reinsurance obligations, there remained potential exposure for Lloyd's Names who underwrote pre-1993 non-life policies if the Equitas reinsurance did not cover the whole of their liabilities to policyholders. This risk has also now been eliminated.
As a result of the transfer, any holders of non-life policies issued prior to 1993 must claim from Equitas directly instead of the Lloyd's Names. Recovery from these Lloyd's Names will no longer be possible under English law or European law.
Further reading: Re Equitas Ltd (the Names At Lloyd's for the 1992 and Prior Years of Account) [2009] EWHC 1595 (Ch)
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 13/07/2009.
